How collaborating on technology changes the buy vs. build debate once and for all

by Brandon Purcell on October 11, 2016

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Our last post by CEO Tom Link, It’s time to evolve how you collaborate in a data-driven world, got me thinking about the importance of partnerships. Who you collaborate with to meet your business objectives matters, especially when it comes to technology. Having the right UX, GIS, and R&D resources on your side can mean the difference between amazing usability and software that slows you down.

Prospects often tell me they’re frustrated. Developing software for an industry as complex—and as data driven—as insurance isn’t easy. I’ve been developing software for 18 years. I can tell you that the decision to “buy or build” a solution isn’t as black and white as it sounds.

More than half of IT projects fail, according to CIO Magazine. Lack of product design resources and failing to align outcomes to meet business goals are two reasons why. Solutions never get deployed, don’t meet the business’ requirements, or are so difficult to use that they never get adopted by the users they are supposed to help. No wonder you’re frustrated. I can’t help but think how much time and money have been wasted.

Chances are, you already have some sort of homegrown data analytics system. And you’re considering whether to extend that to add new features or to retire the solution entirely and buy a new one off the shelf. I get why insurers might decide to create their own in-house solution. After all, compared to buying something new, it can seem like there are lower up-front costs. Not to mention that third-party providers haven’t always delivered solutions that keep pace with the demands of your business. Plus, having control over the end product makes it seem more customizable.

But building software is more complicated (and riskier) than it sounds. Especially for something like risk selection analytics for underwriting. These solutions need to support complex hazard models from different kinds of content providers. I've heard from many prospects that building something like that is just “too risky.” That’s because it’s difficult to maintain and scale as new intelligence becomes available in the market.

When it comes to building software, I wish senior management understood a fundamental truth I’ve learned over the years: The true costs go up significantly when you try to do it all on your own.

In-house development costs are still costs

Spending your budget in-house can often feel like you are saving money. After all, you have the hardware, the programmer’s time is already paid for, and you have a trusted team of folks ready to get the job done. Not so fast. If your company is using this type of thinking, you are (or will be) in for a surprise.

Development is much more expensive than you might think. The real dollar amount you need to consider includes: the cost of your development team, the time taken from your business operations during all phases of development, and the opportunity cost of the work not done on another IT project. Of course, this only applies if you have the expertise within your in-house team to build and add the desired features to your existing solution.

I can’t tell you how many times I’ve seen internal projects end up costing way over the estimate. Or worse, the in-house IT team doesn’t have the expertise to deliver the final functionality. The truth is that developing the solution in-house is never a one-and-done cost.

Once it’s built, you still have to budget for maintenance

Maintaining an application and keeping it running is an expensive proposition. Software has bugs and requires a team to address them as they arise. Once a solution is built, the team typically moves on to another project. I’ve even seen cases where the solution’s primary developer leaves the company. With no one dedicated to keeping the solution running smoothly, your users are often stuck having to figure out a workaround and can lose valuable time, which as you know, is another cost to your business.

At the same time, once your users get the solution in their hands, you can bet they’ll ask for new features and capabilities in future releases. Evolving an in-house solution from version to version also requires a dedicated team—and if your internal resources are on to the next IT project, your users are left with a version 1.0 with limited functionality. If they’re using your solution at all.

An annual enterprise software license can cost upwards of $100,000 a year and yes, over ten years, that’s $1 million. But unlike building in-house, included in that price is maintenance, updates, support, and most importantly, a collaborative partner who understands that you want software to solve your headaches, not cause them. You also get the added benefit of having someone outside your company focused solely on meeting your deliverables on time and on budget.

The right partnership delivers returns on your investment

Collaborating with the right partner gives you a competitive edge. (Stay tuned for more on this—our next blog post will cover collaborating with the right experts and partners to get ahead.) When you can get a more advanced solution faster and for less money, you have to ask yourself: Why would you build one on your own? I like to tell clients that building your own solution is a lot like building your own car from scratch, costly and time consuming. Ultimately, it’s faster, easier, and less expensive to buy a car with the features you like than to try to design and build one yourself.

Just as you might choose a car with a back-up camera or built-in Bluetooth interface, you have options today that allow you to adapt and integrate your existing systems across your unique enterprise. Hybrid solutions excel by leveraging the best of your in-house solution and integrating to third party solutions through APIs. In short, you can have the flexibility you want, while lowering long-term costs. You can also be up and running a heck of a lot faster.

Ideally, integrating your core underwriting system with your advanced risk selection solution gives your business the power to act on information quickly. Let’s say you have an in-house underwriting solution that handles your complex rules and workflow. And, you need to modernize and select better risks using risk models for flood, hail, and tornado. Building a system to integrate this third-party data, perform spatial lookups, and maintain the risk data will require a robust and flexible infrastructure and sophisticated geospatial analytics.

That’s, in part, because the amount of data available—from government sources, third-party providers, and various risk models—is growing at an exponential rate.  Managing, manipulating, and sharing this information efficiently across your organization so it’s easy to understand and act on will take advanced systems that can handle the load. While this sounds simple enough to build, it's pretty complex. But by leveraging an outside solution—one that gives you access to data in a workflow tailored to your needs—it’s possible to have the best of both worlds. Really.

Working with software experts, you can also create economies of scale. At SpatialKey, we develop purpose-built solutions that bridge the gap between underwriting, exposure management, and claims, so our clients can easily make decisions from the same baseline of understanding. When you tap into a third-party solution designed specifically for insurance, you and your internal IT team no longer have to reinvent the wheel. And unlike purchasing a car, your solution will just keep getting better and better over time, thanks to seamless updates by your provider.

So the next time you debate the merits of building or buying a solution, consider all of the shades of gray that will enable you to truly meet your business objective. Who you choose to collaborate with has to be part of your discussion. Partnering with software experts, instead of building in-house, is a clear choice that will keep the wheels of your business turning and more than pay for itself in the long run.

Topics: Insurance, Technology, Collaboration

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